Gold headed for third day of decline

Gold fell, heading for the biggest three-day drop in almost three years, as demand for riskier assets eroded the appeal of the precious metal as a haven.

Gold futures rose as much as 18 percent this month, touching an all-time high of $1,917.90 an ounce on Aug. 23 before erasing most of the gains. The value of a 100-ounce futures contract in New York plunged $10,400 yesterday, more than the $7,425 margin requirement that day, prompting exchange owner CME Group Inc. to increase the minimum cash deposit on trades. The Standard & Poor's 500 Index headed for a weekly gain after a 16 percent decline in the previous four weeks.

"It looks nasty, but this is a normal correction given the magnitude of the move," Matt Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. "The parabolic move finally collapsed. You've got a return to risk appetite, and that's taken the wind out of gold's sails."

Gold futures for December delivery fell $20.40, or 1.2 percent, to $1,736.90 at 10:58 a.m. on the Comex in New York. A close at that price would leave the most-active contract down 8.2 percent in the past three sessions, the biggest slump since October 2008. In London, gold for immediate deliver was down $23, or 1.3 percent, at $1,736.32.

The metal is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. Central banks are adding to reserves for the first time in a generation, joining billionaire investors including John Paulson in hoarding bullion. The Federal Reserve has taken the unprecedented step of saying it will keep borrowing costs at almost zero percent at least through mid-2013 to support the economy.

Not Safe'

"Gold is a trade, gold is a position, gold is volatile, but gold is not safe," Dennis Gartman, an economist, wrote today in his Suffolk, Virginia-based Gartman Letter. "The public is involved in gold, and the cab drivers of the world have bought into it. Now they are being taken out, at high cost."

The Chicago-based CME raised margin requirements after gold futures surged to a record this month and then plunged the most since March 2008. The minimum cash deposit required to trade Comex futures will rise 27 percent to $9,450 per contract in the speculative Tier 1 category at the close of trading today, CME said late yesterday. The maintenance margin will rise to $7,000 from $5,500. The Shanghai Gold Exchange said Aug. 23 it will hike margins from settlement today.

"In our opinion, the margin is not nearly high enough yet," Gartman said. "Proper margining would seem to be closer to $15,000 per contract." Given the volatility in trading, "the exchange needs to protect itself and its clients" from the possibility of a large speculator or two putting "the exchange into jeopardy," he said.